Sunny earnings forecast for BGE after summer's warm temperatures


If you thought the summer was hot, wait til you see the Baltimore Gas and Electric Co.'s third-quarter earnings.

Although the utility isn't slated to report results for the period ending Sept. 30 for at least two months, analysts expect BGE's performance to surge as a result of the record heat wave Baltimore experienced this summer.

"I believe it will be a recent record, and certainly better than last year's results," said Ronald S. Tanner, a utility analyst with Legg Mason Wood Walker Inc. "Because there's a strong correlation between the weather and sales, particularly in residential and commercial accounts, which make up the bulk of BGE's customers."

In the third quarter of 1994, BGE generated common stock earnings of $116.7 million, a 20 percent decline from the previous reporting period. The decline was primarily attributed to the thermometer in July and August, when Baltimore suffered through only a fortnight of days at temperatures of 90 degrees Fahrenheit and above, and only three days above 95 degrees.

By comparison, most analysts project BGE will report earnings of roughly $154 million in the third quarter, or $1.05 per share, gains of 32 percent and 22 percent, respectively.

BGE data illustrate how 1994 cooler summer temperatures iced the utility customer's needs. Between June and August, BGE had contract sales of 8.15 million megawatt hours of electricity powering Baltimore area air conditioners and other appliances.

Translated, the average residential customers' bill for the three summer months totaled $297 for the utility.

By comparison, the summer of 1995 had a record-breaking 35 days above 90 degrees and 20 above 95 degrees. BGE's contract sales jumped to 8.4 million megawatt hours through Aug. 23, and the average residential customer bill rose to $304.

While that 2.3 percent bill increase doesn't sound impressive, the gain begins to add up when spread out over BGE's more than 1 million electricity customers.

"Looking at the preliminary weather data and sales estimates, they're not as high as we had expected," said Doug Kinney, BGE's principal forecaster. "We suspect that may be a reflection of the local economy, which may have slackened a bit this summer. Employment growth is down, which may be an indication that businesses aren't producing at full capacity and households are watching their spending allocations more closely than before."

Not that BGE is complaining. The hot weather and corresponding revenues in July and August are expected to put the utility back on track to meet analysts' 1995 overall earnings, which had slumped because of weather-influenced, lower-than-expected results in the first half of this year.

Still, analysts don't expect the anticipated rising income figures or the summer temperatures to have that much of an impact on BGE's stock price. Over the past several months, the company's share price has risen steadily on several "buy" recommendations from various Wall Street brokerages to about $26 per share.

Ironically, BGE's performance in the first two quarters of 1995 dampened its stock price. Many of the recent "buy" recommendations are based on assumptions that the stock is simply underpriced relative to its operations and earnings potential.

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